Quote Of The Day: Mercedes-Benz NEEDS MOAR MODELS!!!111
In the never ending quest for volume uber alles, Mercedes-Benz has announced that “four new vehicles without a predecessor model will be launched”.
The need for scale in the auto industry has never been more acute, and increasing volume is one way to help take advantage of this strategy – especially in a higher margin segment like luxury vehicles. But at some point, Mercedes is going to run into what I call “the Coach effect”, named after the handbag company which ended up degrading its brand via a mass downward expansion into outlet stores and lower prices. The current lineup of Mercedes (and BMW and Audi) is jam packed with endless derivatives of the same four platforms. On paper, this is a sound strategy for maximizing economies of scale. But in practice, it creates an alphabet soup of indistinguishable variants while also decreasing the barrier to entry for new buyers – arguably the selling point for luxury vehicles.
Or maybe I’m wrong. You tell me.
You're not wrong. There's immense pressure to increase growth at all costs, and there's only so much room to do that at the top. Starting another brand is tough, and cashing in the equity on an existing valueable brand is too tempting.
Sorry, but whenever I see the "s-word" -- scale -- I have to rise to the bait. Can't help myself! Economies of scale are absolutely crucial and critical in the auto industry, no argument there. But once an OEM is at the relevant MES (minimum economic scale), more scale adds nothing to the bottom line, and can even erode it. If scale were the key factor for success (not that the article said this), why did GM go bankrupt, why does VW (the VW brand specifically, not the overall company, which includes Audi etc.) profitability languish, and how does lil ol' Suzuki survive? And it is not at all clear that MES is growing: note that the top ten OEMs in the world have a LOWER share of total global output now than they did 20 years ago. Doesn't seem like the inexorable march of scale economies made much progress... And it's important to define the relevant scale: the incremental cost of a new model has been FALLING in relative terms, allowing someone like Mercedes to make good money off models that sell at a LOWER volume rate than in the past. So PER-MODEL MES may be dropping. (Conversely, the amount of advertising needed to get a brand in front of the public seems to be going UP, and the MES of an exotic powertrain (e.g. PHEV) may also be higher.) And overall, if you plot OEM size against profit margins, or even average platform size against profit margins, you see NO statistically-significant relationship. So with all due respect I gotta disagree with the argument that the need for scale is more acute than in the past... it might be AS acute, but one can argue that it is LESS acute: I have endless respect for Sergio Marchionne but his assertion that 6 mm units is global OEM MES is nuts, given that Daimler is at 2.5 and BMW at about 2.2, and both seem to be doing fine.... Okay I will take my medication now, but close with the assertion that the assumption common in the industry that bigger is better is closer to a religious belief than it is to a scientific theory.
To me, the fastest way to growth in North America is to offer even more downmarket engine choices than they do now. I'm in Vienam this month, and all of the new E and C classes I've seen so far (and there's a lot of them) are 4 cylinder C200, C250, E200, and E250's. The only current S-Class I've seen are all V6's (S400 SWB). It's not like they have the excuse of using a lower income, because with the exchange rate it's the same price to buy an E250 here as an S550 in Canada. As an aside, I see only V8 and V12 7-series and A8's. The most absurd car I've seen all week was an AMG GLA45...in a city where few go over 30km/h. Also, every taxi and bus is a stick shift. Google "Hyundai Universe" to see the size class I'm referring to.
I really don't get the angst over the model variations. Up until 25 years or so ago, most makers made most of their lines in up to 5-6 bodystyles. Sedan, coupe, convertible, stationwagon, hatchback, sometimes things like a pickup, hardtop, fastback, all sorts of variations. Usually in a couple different sizes. The increasing cost of engineering and certification caused that to go away for a long time, and things got very boring. Now platform sharing has greatly reduced the cost to develop variations again. So why not? If some one people want a two door fastback CUV (as an example) and are willing to pay a nice premium for it, why should MB and BMW not do it? What's it to the B&B? It probably cost next to nothing to develop the X6, and while *I* think it is silly and would never buy one, the thing is a total money spinner. Sometimes it's a miss - see 5GT. But the 3GT is selling quite well, and again, at a premium. I swear, there are people on here who would only be happy if the only vehicle available to buy was a beige 4dr Camry.